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Another $10bn in semiconductor revenue disappears into Coronavirus-shaped hole

By Bill Ray | May 19, 2020 | 0 Comments

Updating our semiconductor forecast we’ve added 400,000 ventilators, five million pulse oximeters, and twenty-four million digital thermometers to the applications that will need semiconductor chips in 2020, but that’s not nearly enough to offset the smartphones and cars that people aren’t going to buy.

We’re now forecasting that smartphone unit production will be down almost 14% in 2020, a bigger drop than we expected in March when the scale of the global lockdown was far from clear. Last time we thought production would be a serious problem, with Chinese factories unable to make enough ‘phones to meet demand. This time we think demand will be the problem, as consumers (and companies) postpone upgrading to the latest flagships. The economic impact of job losses and reduced income means many consumers won’t have a choice, and those that do have money may not want to spend it – when demand recovers we’ll likely see more mid-range handsets, and fewer flagships, being sold.

The story in automotive is similar. Vehicle production nosedived in the first quarter of 2020, and we’re expecting less than 72 million vehicles to be manufactured in 2020, resulting in semiconductor revenue from automotive being down $1.3bn compared to 2019. We are expecting a bounce back in 2021, to 2019 levels, and with a green hue. Electric vehicles (and hybrids) will be much more common, which is good news for semiconductors (EVs contain more chips).

All this has a big impact on memory, particularly NAND Flash. NAND was already in oversupply in 2019, with revenue declining by 26.4%. That resulted in reduced growth in production, which would have seen prices recovering throughout 2020 if the virus hadn’t turned everything upside down. Now we’re expecting the oversupply to stretch into 2021.

We are seeing stronger revenue in the first half of the year thanks to component stockpiling triggered by uncertainty over semiconductor fabrication. Until very recently no one knew if the fabrication plants would sustain production through the crisis. In February and March, we saw prices jump (specifically in memory) as companies laid in stocks against future disruption. Now it seems that most fabs kept the lines running throughout, so component supply shouldn’t be a problem.

Many countries are already putting together plans for a post-Covid recovery, often involving large-scale investment in high technology industries and applications. For semiconductors that means increased supply, and, ideally, demand, but it we should also prepare for a declining rate of innovation and investment, and accept some decentralization of the global marketplace. In our Forecast Alert we’ve reduced the value of the semiconductor industry by $10bn for 2020, but over the next few years we’re expecting changes to the shape of the industry as well as its size.

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